Lidl is a grocery company with stores throughout Spain. Suppose the company In addition to cost of products sold, the store has 6775,000 of support costs, so is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the operating income is 917,680775,000=142,680. Lidl currently uses an company plans to increase its space the most. Assume that the Madrid store accounting system that uses cost of products sold as a cost-allocation base for has just three departments: produce, packaged food, and meat. The most allocating support costs. Pablo Ramirez, controller of Lidl, recently attended a recent annual report for the store showed sales of 4,017,680, which seminar an activity-based costing. He suggests that Lidi management should generated a gross margin of 917,680. Sales and gross margins of the three undertake further analysis before deciding which product gets the largest departments were as follows: increase in space in the expansion. He has asiked you, his assistant, to lead (Click the icon to view the sales and gross margins.) this analysis. Read the requirements. Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the operating income as a percent of sales for each department using Lidl's existing system. Use this information to assess the relative profitability per euro of sales of each of the three departments. Start by determining the formula needed to compute indirect cost rates, then enter the amount to caiculate the indirect cost rate under the company's existing cost system. (Round the rate to two decimal places,,XX.) Now compute the operating income and the operating income as a percent of sales for each department using Lidils existing system. (Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of sales. Round the operating income (loss) as a percent of sales to two decimal places, x.x(%. Use the information to assess the relative profiabily per euro of sales of each of the three departments Under the existing cost system the department appears to be the most profinable rolative to the amount of saies from that department and the department appears to bo the least profitable relative to the amounts of sales. Requirement 2. Using these data and activly-based costing, calculate the operating income and operating income as a percent of sales for each product. (For axample, note that each purchase ordor costs 667,870/6,170=f11 to process.) Begin by determining the indrect cost rate per activity using the same formula labels as you determined in requirement 1 , The calculation of the indirect cost rate to allocato ondering costs (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal places, X.) Now compute the operating inceme and the operating income as a percent of sales for each deparment using the actily-basod data. (Complete all antwer boxes. Use a minus sign or porentheses to show an operating loss or an operating loss as a parcent of ales. Round the operating income (loss) as a percant of salins to Lid is a grocery company with stores throughout Spain. Suppose the company In addition to cost of products soid, the store has 6775,000 of support costs, so is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the company plans to increase its space the most. Assume that the Madrid store has just three departments: produce, packaged food, and meat. The most recent annual report for the store showed sales of 64,017,680, which generated a gross margin of 917,680. Sales and gross ma departments were as follows: (Click the icon to view the sales and gross margins.) operating income is 917,6806775,000=6142,680. Lidl currently uses an accounting system that uses cost of products sold as a cost-allocation base for allocating support costs. Pablo Ramirez, controller of Lidi, recently attended a seminar on activity-based costing. He suggests that Liat management should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked you, his assistant, to lead this analysis. Read the requirements. Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the cperating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitability per euro of Start by determining the formula needed to compute indirect cost rates, then enter the amount to calculate the indirect cost rate under the company's existing cost system, (Round the rate to two decimal places, XX.) ing Lidi's existing system, (Use a minus sign or me (lots) as a percent of salos to two decimal places, Begin by determining the indrect cost rute per at 6.870/6,170=611 so process, ) alocate ordecing costs (the cost per purchase arder) has been given to you as an exas you detormined in requirement 1 . The calculation of the indirect cost rate to tes, xxoc,j two secimul phecks, x som.) Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the operating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitability per euro of sales of each of the three departments. Start by determining the formula needed to compute indirect cost rates, then enter the amount to calculate the indirect cost rate under the company's existing cost. system. (Round the rate to two decimal places, XX.) Now compute the operating income and the operating income as a percent of sales for each def parentheses to show an operating loss or an operating loss as a percent of sales. Round the opt x.xxy.) Use the information to assess the relative profitability per euro of saies of each of the three departments. Undof the existing cost bystem the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least profiable relative to the amounte of ales. Requirement 2. Using these data and activity-based costing, calculate the operating inoome and oparating income as a percent of saies for each product. (For example, nole that each purchase order costs 67.870/6,170 i 11 to process.) Degin by determining the indirect cost rate pet activity using the saene formula labeis as you determined in requirement 1. The caiculaticn of the indirect cost rate to allocate cerdering costa (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal oluces, XX.) Wow compute the cperating hoome and the operating income as a percent of salos for each department using the activity-based data. (Complete all answer boxes. Use a minus sige or parentiveses to shiow an coerating less or an operaing loss as a percent of soles. Round the operating inceme floss) as a percent of salos to Lidi is a grocery company with slores throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A pretiminary analysis has In addition to cost of products sold, the store has 775,000 of shown the packaged food department to be the most proftable, so the company support costs, so cperating income is 6917,6806775,000=142,680. plans to increase its space the most. Assume that the Madrid store has just Lidl currently uses an accounting system that uses cest of producss sold as three departments; produce, packaged food, and meat. The most recent annual a cost-allocation base for allocating support costs. Pabio Ramirez, repoet for the stare showed sales of 4,017,680, which generated a gross margin controller of Lidl, recently attended a seminar on activity-based costing. He suggests that Lidi management should undertake further analysis before of eQ17,680. Sales and gross marpins of the three departments were as follows: deciding which product gets the largest increase in space in the (Click the icon to view the sales and gross margins.) expansion. He has asked you, his assistant, to lead this analysis. Read the reguirements. Requirement 1. The starting point of your analysis is to detemine product proftability under the existing cost accounting system. Compuse the operating income and the operating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitabity per euro of sales of each of the three departments. Stat by detecmining the formula needed to compute indirect cost rates. then enter the amount to calculate the indirect cost rate under the company's existing cost system. (Round the rate to two decimal places, X ) Use the information to assess the reiative peoftabilty per euro of salks of each of the three departmants. Under the existing cost system the departinent appears to be the moet profitable relatie to the amount of sales from that department and the dopartnent appears to be the least prothasle relative to the anounts of sales. Requireenent 2. Using these date and activy-based costing, eulculate the operasing income and cperatirg income as a percent of salas for each product. (For example, note that each purchase order costs 667,870(6,170=611 to procest ) Begin by detemining the indibect coot rate per ocfitiy ueing the same formuls labels as you detormined in requkement 1. The calcuteson of the indirect cost rate to alocate ordering costs (me cost per purchise order) has been pven to yoe as an example. (Rivind fie rate to neo decimal places, X0C ) Now compute the operating inoome and the opecang income as a percent of cales for each dipertment using the activiby based data. (Compiete ail anawer boses. two deomal placss, Xxaxy, Lidl is a grocery company with stares throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the company plans to increase its space the most. Assume that the Madrid store has just three departments: produce, packaged food, and meat. The most recent annual report for the store showed sales of (4,017,680, which generated a gross margin of f917,680. Sales and gross margins of the three departments were as follows: (Click the icon to view the salos and gross marpins.) In addition to cost of products scid, the store has 6775,000 of support costs, so operaling income is 917,680 - 775,000=6142,660. Lid currently uses an accounting system that uses cost of products sold as a cost-allocation base for allocating support costs. Pablo Ramirez, controller of Lidi, tecently attended a seminar en activily-based costing. He suggests that Lidi management should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked you, his asaistant, to lead this analyris. Read the tequirements. Now cemputo the operating income and the operating income as a percent of sales for each department using Ldils existing system. (Use a minus sign or parentheses to show an operating lots or an operating loss as a percent of sales. Round the operating income (coss) as a percant of sales to two decimal places, Uee the information to atwess the relative profitability per euro of sales of each of the thee departments. Under the mxisting oast bystem the department appears to be the mout profeable relative to the amourt of sales from that department and the i relative to the amounts of aales. Requirement 2. Using these data exarrole. note that each purchase c alculate the operaling income and oserating inoome as a percent of sales for each prodiect, (Fror Begin by deterinining the indirect oc * (11 to prookst) allocame ordering costs the cost per packaged bod e same formula labels as you delermined in requiremtint 1. The calculation of the indirect cost rate to given to you as an example. (Round the nate to two decimat placos, X.X.) Now corpute the operating income and the operating income as a percent of sales br each department using the actitybaned data (Cemplete af answer tickes. Use the information to assess the relative profitability per euro of sales of each of the three departments. Under the existing cost system the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least profitable relative to the amounts of sales. Requirement 2. Using these data and activity-based costing, calculate the operating income and operating income as a percent of sales for each product. (For example, note that each purchase order costs 67,870/6,170=E11 to process.) Begin by determining the indirect cost rale per activily using the same formula labels as you determined in requirement 1 . The calculasion of the indirect cost rate to allocate ordering costs (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal places, XX.) Now compute the operating income and the operating income as a percent of sales for each dos Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of two decimal places, %%.) Under the ARC cost byatem the department appears to be the mogt profitable telalive to the ancunt of sales from that department and the debartment aopears to be the loast proftable relative to the arnouns of calos A. Fixed and variatle costs. Even the activiy-based costing syesem allocates all costs on a per urit basia. Foned costs ach not separated from variable costs, so a contribution margin cannot be detemined. This may be ok for long-torm atrategie decisions, however, it will net provide a short-ferms prediction of the eflect of the expansion. B. Product interactions. Wa increased (or dectessed) space tor one department affect the salbs of ancther department? C. Opportunities for ro-engineering. The activity-baced costing numbers provide costs for providing oach type of support activity. it aill help determine whethar these activities are worh their cast of it any of them might be accemplshed mere efficienty. The high coats of acthities for the produce departmant might be. reduced by re-engineering the processes, theieby kncreasing the proftabilty of the department: D. Market demand. The activfy based obsts can be uted to estmate the impact of definctnt sales leveis, but we need to know how nuch atded salea will resut trom the expansion of capacity in each deparment. 1. Capacity uailsation by eacti department. Fox exparibn decisient. managoment ahould firat eapand the department that give Bhe highest contribution marge per square foot (or pet lineat sheit toot or cther capacty measere) F. Al of the above Jnder the ABC cost system the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least proftable relative to the amount of sales. Requirement 3. Propose a strategy for expansion. Which information, that based on the current costing system or that based on the activitybased costing eystem. is most usefu? Why? What additional information would you lke to have bolore making a more defintive recommendation on an expansion strategy? The systom is generally more acourate because it better atlocates coats on a caschatfoct babis. The department uses more suppot activities (relative to its sales) than the other departments, thus it causes of the support costs. The costs to the deparment. Based on the costs allocated under this systom, Lidt should considering axpandirg recognizes th and thus alocates the depariment. What additionsl information would you tke to have before making a more defititve recommendation on an expansion strategy? Select which addinional piece(s) of information is(are) needed to assist in making the best expansion decision: A. Fued and varlabie oosts. Even the activhy-based costing syatem alocates all costs on a per unt basis. Fixed cests are not separated from variable costa, so a contribution margin eannot be detemined. This may be ok for long -term strategle decisions, however, it will not provide a short tarm prediction of the effect of the expansion. 3. Protuct inseractions, Wit increased (or decreased) space for one desartment affect the sales of another decaatment? c. Opgonunities for re-engineering. The activitybased costing numbers provide costa for providing each type of ruppert activity it wil halp datermine whether these activilies are worth their cost or if any of them might be accomplahed more offelantly. The high costs of activites for the produce dapartment might be reduced by re-engineering the processes, thereby increasing the proflebily of the dopartment. D. Maket deinene. The activitybased costs can be used to estanate the impact of diserent nales levels, but we need to know hew much added sales will sesus froen the expansion of capacity in each department. E. Capacity utilization by each department. Foe expansion decisions, marapement should first expand ihe departinent that pives the higheat contunbution margin per square foot (of per linear sheif foot or other capacity meabule). f. A of the ahove. In addison to coct of products sold, the store has E775,000 of support costs, 50 operating income is 917,680e775,000=142,680. Requirements Les currenty uses an accounting system that uses cost of produets sold a cost-allocation base for allocating support costs. Pablo Ramirez, controiler of Liet, recently attended a seminar on activity-based conting. suggests that Lidl mansgement should undertake further analysis before deciling which product gots the largest herease in space in the 1. The staring point of your analyses is to determine product peofiablily under the expansion. He has asked you, his assistant, to lead this analysis. existing cost accourling system. Compute the operating incorne and the cperating income as a pecsent of sales for each departmert uring Lisf: Read the requinmenss. d sales of each of the thies departments. 2. Ramirez asks you rext to develop product costs using an activily tased accosunting system You dotarmine that there are five major actities, osch weth a diflerent cost driver to be used as a cost aliocation base: (Click the ias to view the cont divers and contallocation beses). You lave detemined the following information about the cont diver: (Cliok the icon to view the data) The total cest of each activis was as follows: (Clink the icon to vew the conts) Using these data and activity-based costine, caloulate the operating incone ans operding income as a percent ol sales for each protuct (For euarpes. nots that each purchase oeder costs 66,670/6,170=611 to peocess.) 3. Propose a strategy for expanion, Which intormation thas baned on en cuntent costing spstem or that besed on the actively based conting nyetion in most usedur Why? What asctional intormation would you bax to have betoee making a moes defintive recommendation on an expansion streegy? Data table Data table a. Ordeceng - Placing of ordwn for purchases b. Deivery - Physical delivery and reoegt of meechandise c. Shelstocking-5todking of mitechandse on store stwites. induding ongoing restosking 1. Curtomer suppot- Wssintance to ountomen. incluting chick out and bsgaing 6. Prusuce nontorivg -Constarty dibching on the atading and treshness of produce The cost drivers for bach actify a es as toloes: Data table Lidl is a grocery company with stores throughout Spain. Suppose the company In addition to cost of products sold, the store has 6775,000 of support costs, so is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the operating income is 917,680775,000=142,680. Lidl currently uses an company plans to increase its space the most. Assume that the Madrid store accounting system that uses cost of products sold as a cost-allocation base for has just three departments: produce, packaged food, and meat. The most allocating support costs. Pablo Ramirez, controller of Lidl, recently attended a recent annual report for the store showed sales of 4,017,680, which seminar an activity-based costing. He suggests that Lidi management should generated a gross margin of 917,680. Sales and gross margins of the three undertake further analysis before deciding which product gets the largest departments were as follows: increase in space in the expansion. He has asiked you, his assistant, to lead (Click the icon to view the sales and gross margins.) this analysis. Read the requirements. Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the operating income as a percent of sales for each department using Lidl's existing system. Use this information to assess the relative profitability per euro of sales of each of the three departments. Start by determining the formula needed to compute indirect cost rates, then enter the amount to caiculate the indirect cost rate under the company's existing cost system. (Round the rate to two decimal places,,XX.) Now compute the operating income and the operating income as a percent of sales for each department using Lidils existing system. (Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of sales. Round the operating income (loss) as a percent of sales to two decimal places, x.x(%. Use the information to assess the relative profiabily per euro of sales of each of the three departments Under the existing cost system the department appears to be the most profinable rolative to the amount of saies from that department and the department appears to bo the least profitable relative to the amounts of sales. Requirement 2. Using these data and activly-based costing, calculate the operating income and operating income as a percent of sales for each product. (For axample, note that each purchase ordor costs 667,870/6,170=f11 to process.) Begin by determining the indrect cost rate per activity using the same formula labels as you determined in requirement 1 , The calculation of the indirect cost rate to allocato ondering costs (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal places, X.) Now compute the operating inceme and the operating income as a percent of sales for each deparment using the actily-basod data. (Complete all antwer boxes. Use a minus sign or porentheses to show an operating loss or an operating loss as a parcent of ales. Round the operating income (loss) as a percant of salins to Lid is a grocery company with stores throughout Spain. Suppose the company In addition to cost of products soid, the store has 6775,000 of support costs, so is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the company plans to increase its space the most. Assume that the Madrid store has just three departments: produce, packaged food, and meat. The most recent annual report for the store showed sales of 64,017,680, which generated a gross margin of 917,680. Sales and gross ma departments were as follows: (Click the icon to view the sales and gross margins.) operating income is 917,6806775,000=6142,680. Lidl currently uses an accounting system that uses cost of products sold as a cost-allocation base for allocating support costs. Pablo Ramirez, controller of Lidi, recently attended a seminar on activity-based costing. He suggests that Liat management should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked you, his assistant, to lead this analysis. Read the requirements. Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the cperating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitability per euro of Start by determining the formula needed to compute indirect cost rates, then enter the amount to calculate the indirect cost rate under the company's existing cost system, (Round the rate to two decimal places, XX.) ing Lidi's existing system, (Use a minus sign or me (lots) as a percent of salos to two decimal places, Begin by determining the indrect cost rute per at 6.870/6,170=611 so process, ) alocate ordecing costs (the cost per purchase arder) has been given to you as an exas you detormined in requirement 1 . The calculation of the indirect cost rate to tes, xxoc,j two secimul phecks, x som.) Requirement 1. The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the operating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitability per euro of sales of each of the three departments. Start by determining the formula needed to compute indirect cost rates, then enter the amount to calculate the indirect cost rate under the company's existing cost. system. (Round the rate to two decimal places, XX.) Now compute the operating income and the operating income as a percent of sales for each def parentheses to show an operating loss or an operating loss as a percent of sales. Round the opt x.xxy.) Use the information to assess the relative profitability per euro of saies of each of the three departments. Undof the existing cost bystem the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least profiable relative to the amounte of ales. Requirement 2. Using these data and activity-based costing, calculate the operating inoome and oparating income as a percent of saies for each product. (For example, nole that each purchase order costs 67.870/6,170 i 11 to process.) Degin by determining the indirect cost rate pet activity using the saene formula labeis as you determined in requirement 1. The caiculaticn of the indirect cost rate to allocate cerdering costa (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal oluces, XX.) Wow compute the cperating hoome and the operating income as a percent of salos for each department using the activity-based data. (Complete all answer boxes. Use a minus sige or parentiveses to shiow an coerating less or an operaing loss as a percent of soles. Round the operating inceme floss) as a percent of salos to Lidi is a grocery company with slores throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A pretiminary analysis has In addition to cost of products sold, the store has 775,000 of shown the packaged food department to be the most proftable, so the company support costs, so cperating income is 6917,6806775,000=142,680. plans to increase its space the most. Assume that the Madrid store has just Lidl currently uses an accounting system that uses cest of producss sold as three departments; produce, packaged food, and meat. The most recent annual a cost-allocation base for allocating support costs. Pabio Ramirez, repoet for the stare showed sales of 4,017,680, which generated a gross margin controller of Lidl, recently attended a seminar on activity-based costing. He suggests that Lidi management should undertake further analysis before of eQ17,680. Sales and gross marpins of the three departments were as follows: deciding which product gets the largest increase in space in the (Click the icon to view the sales and gross margins.) expansion. He has asked you, his assistant, to lead this analysis. Read the reguirements. Requirement 1. The starting point of your analysis is to detemine product proftability under the existing cost accounting system. Compuse the operating income and the operating income as a percent of sales for each department using Lidis existing system. Use this information to assess the relative profitabity per euro of sales of each of the three departments. Stat by detecmining the formula needed to compute indirect cost rates. then enter the amount to calculate the indirect cost rate under the company's existing cost system. (Round the rate to two decimal places, X ) Use the information to assess the reiative peoftabilty per euro of salks of each of the three departmants. Under the existing cost system the departinent appears to be the moet profitable relatie to the amount of sales from that department and the dopartnent appears to be the least prothasle relative to the anounts of sales. Requireenent 2. Using these date and activy-based costing, eulculate the operasing income and cperatirg income as a percent of salas for each product. (For example, note that each purchase order costs 667,870(6,170=611 to procest ) Begin by detemining the indibect coot rate per ocfitiy ueing the same formuls labels as you detormined in requkement 1. The calcuteson of the indirect cost rate to alocate ordering costs (me cost per purchise order) has been pven to yoe as an example. (Rivind fie rate to neo decimal places, X0C ) Now compute the operating inoome and the opecang income as a percent of cales for each dipertment using the activiby based data. (Compiete ail anawer boses. two deomal placss, Xxaxy, Lidl is a grocery company with stares throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most profitable, so the company plans to increase its space the most. Assume that the Madrid store has just three departments: produce, packaged food, and meat. The most recent annual report for the store showed sales of (4,017,680, which generated a gross margin of f917,680. Sales and gross margins of the three departments were as follows: (Click the icon to view the salos and gross marpins.) In addition to cost of products scid, the store has 6775,000 of support costs, so operaling income is 917,680 - 775,000=6142,660. Lid currently uses an accounting system that uses cost of products sold as a cost-allocation base for allocating support costs. Pablo Ramirez, controller of Lidi, tecently attended a seminar en activily-based costing. He suggests that Lidi management should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked you, his asaistant, to lead this analyris. Read the tequirements. Now cemputo the operating income and the operating income as a percent of sales for each department using Ldils existing system. (Use a minus sign or parentheses to show an operating lots or an operating loss as a percent of sales. Round the operating income (coss) as a percant of sales to two decimal places, Uee the information to atwess the relative profitability per euro of sales of each of the thee departments. Under the mxisting oast bystem the department appears to be the mout profeable relative to the amourt of sales from that department and the i relative to the amounts of aales. Requirement 2. Using these data exarrole. note that each purchase c alculate the operaling income and oserating inoome as a percent of sales for each prodiect, (Fror Begin by deterinining the indirect oc * (11 to prookst) allocame ordering costs the cost per packaged bod e same formula labels as you delermined in requiremtint 1. The calculation of the indirect cost rate to given to you as an example. (Round the nate to two decimat placos, X.X.) Now corpute the operating income and the operating income as a percent of sales br each department using the actitybaned data (Cemplete af answer tickes. Use the information to assess the relative profitability per euro of sales of each of the three departments. Under the existing cost system the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least profitable relative to the amounts of sales. Requirement 2. Using these data and activity-based costing, calculate the operating income and operating income as a percent of sales for each product. (For example, note that each purchase order costs 67,870/6,170=E11 to process.) Begin by determining the indirect cost rale per activily using the same formula labels as you determined in requirement 1 . The calculasion of the indirect cost rate to allocate ordering costs (the cost per purchase order) has been given to you as an example. (Round the rate to two decimal places, XX.) Now compute the operating income and the operating income as a percent of sales for each dos Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of two decimal places, %%.) Under the ARC cost byatem the department appears to be the mogt profitable telalive to the ancunt of sales from that department and the debartment aopears to be the loast proftable relative to the arnouns of calos A. Fixed and variatle costs. Even the activiy-based costing syesem allocates all costs on a per urit basia. Foned costs ach not separated from variable costs, so a contribution margin cannot be detemined. This may be ok for long-torm atrategie decisions, however, it will net provide a short-ferms prediction of the eflect of the expansion. B. Product interactions. Wa increased (or dectessed) space tor one department affect the salbs of ancther department? C. Opportunities for ro-engineering. The activity-baced costing numbers provide costs for providing oach type of support activity. it aill help determine whethar these activities are worh their cast of it any of them might be accemplshed mere efficienty. The high coats of acthities for the produce departmant might be. reduced by re-engineering the processes, theieby kncreasing the proftabilty of the department: D. Market demand. The activfy based obsts can be uted to estmate the impact of definctnt sales leveis, but we need to know how nuch atded salea will resut trom the expansion of capacity in each deparment. 1. Capacity uailsation by eacti department. Fox exparibn decisient. managoment ahould firat eapand the department that give Bhe highest contribution marge per square foot (or pet lineat sheit toot or cther capacty measere) F. Al of the above Jnder the ABC cost system the department appears to be the most profitable relative to the amount of sales from that department and the department appears to be the least proftable relative to the amount of sales. Requirement 3. Propose a strategy for expansion. Which information, that based on the current costing system or that based on the activitybased costing eystem. is most usefu? Why? What additional information would you lke to have bolore making a more defintive recommendation on an expansion strategy? The systom is generally more acourate because it better atlocates coats on a caschatfoct babis. The department uses more suppot activities (relative to its sales) than the other departments, thus it causes of the support costs. The costs to the deparment. Based on the costs allocated under this systom, Lidt should considering axpandirg recognizes th and thus alocates the depariment. What additionsl information would you tke to have before making a more defititve recommendation on an expansion strategy? Select which addinional piece(s) of information is(are) needed to assist in making the best expansion decision: A. Fued and varlabie oosts. Even the activhy-based costing syatem alocates all costs on a per unt basis. Fixed cests are not separated from variable costa, so a contribution margin eannot be detemined. This may be ok for long -term strategle decisions, however, it will not provide a short tarm prediction of the effect of the expansion. 3. Protuct inseractions, Wit increased (or decreased) space for one desartment affect the sales of another decaatment? c. Opgonunities for re-engineering. The activitybased costing numbers provide costa for providing each type of ruppert activity it wil halp datermine whether these activilies are worth their cost or if any of them might be accomplahed more offelantly. The high costs of activites for the produce dapartment might be reduced by re-engineering the processes, thereby increasing the proflebily of the dopartment. D. Maket deinene. The activitybased costs can be used to estanate the impact of diserent nales levels, but we need to know hew much added sales will sesus froen the expansion of capacity in each department. E. Capacity utilization by each department. Foe expansion decisions, marapement should first expand ihe departinent that pives the higheat contunbution margin per square foot (of per linear sheif foot or other capacity meabule). f. A of the ahove. In addison to coct of products sold, the store has E775,000 of support costs, 50 operating income is 917,680e775,000=142,680. Requirements Les currenty uses an accounting system that uses cost of produets sold a cost-allocation base for allocating support costs. Pablo Ramirez, controiler of Liet, recently attended a seminar on activity-based conting. suggests that Lidl mansgement should undertake further analysis before deciling which product gots the largest herease in space in the 1. The staring point of your analyses is to determine product peofiablily under the expansion. He has asked you, his assistant, to lead this analysis. existing cost accourling system. Compute the operating incorne and the cperating income as a pecsent of sales for each departmert uring Lisf: Read the requinmenss. d sales of each of the thies departments. 2. Ramirez asks you rext to develop product costs using an activily tased accosunting system You dotarmine that there are five major actities, osch weth a diflerent cost driver to be used as a cost aliocation base: (Click the ias to view the cont divers and contallocation beses). You lave detemined the following information about the cont diver: (Cliok the icon to view the data) The total cest of each activis was as follows: (Clink the icon to vew the conts) Using these data and activity-based costine, caloulate the operating incone ans operding income as a percent ol sales for each protuct (For euarpes. nots that each purchase oeder costs 66,670/6,170=611 to peocess.) 3. Propose a strategy for expanion, Which intormation thas baned on en cuntent costing spstem or that besed on the actively based conting nyetion in most usedur Why? What asctional intormation would you bax to have betoee making a moes defintive recommendation on an expansion streegy? Data table Data table a. Ordeceng - Placing of ordwn for purchases b. Deivery - Physical delivery and reoegt of meechandise c. Shelstocking-5todking of mitechandse on store stwites. induding ongoing restosking 1. Curtomer suppot- Wssintance to ountomen. incluting chick out and bsgaing 6. Prusuce nontorivg -Constarty dibching on the atading and treshness of produce The cost drivers for bach actify a es as toloes: Data table